Retirees generally shift their focus from growing their net worth to preserving their nest egg. While there are a bunch of small expenses you can cut, it's also good to look at housing, which likely takes up the majority of your budget.
Most people have monthly housing payments, but deciding between renting and owning your home can have a major impact on your nest egg's longevity. These are some of the key details to consider.
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Owning a home is better if you already do
If you bought your home a while ago, you may have paid off the entire mortgage by now. If that's your situation, you just have to keep up with maintenance and property taxes.
Renting will introduce an additional monthly living expense for homeowners with fully paid-off homes. Homeowners can also tap into home equity lines of credit, reverse mortgages, and other financial products that let them use their home equity, if necessary. While these types of products should be used only as a last resort, you don't even have these options as a renter.
Renting saves money if you don't own a home
Owning a home is better if you have paid it off already, and the great thing about homeownership is that you can pass it on to your children. However, renting can save a lot of money if you don't already have home equity.
Buying a home requires an expensive down payment, and even after that payment, your monthly mortgage payments may exceed your rent. Renting reduces your monthly payments while letting you save all the money you would have needed for the down payment.
This phenomenon is driven by housing shortages and the availability of apartment units. Landlords want to fill their vacant apartment units and offer more competitive pricing. However, with few homes available for sale, homeowners can set higher prices for them.
Renters give their portfolios more time to grow
Lower monthly payments and the lack of a down payment make renting more attractive for retirees who don't own homes. This arrangement makes it easier for them to stay invested in the stock market for longer. They don't have to sell assets to cover the down payment or deal with higher monthly payments.
Renting also lets you avoid surprise expenses that come with owning a property. A rainstorm may damage the roof, water infiltration can result in mold, and aging heating or cooling equipment may suddenly need to be replaced. These surprise costs can eat away at a retiree's nest egg quickly and are almost impossible to predict.
Renting offers more certainty since there are no surprise costs. It's also easier and can be a better tool for building wealth if you don't already own a home.
